80% of new businesses fail within one and one-half years after their start-up. Failure to properly plan and evaluate the needs of your business will lead to failure. It is important to lay a solid foundation that will support your business enterprise. The following are 5 common mistakes people make prior to starting a business.
- ) No Business Plan. In my practice as a business attorney in Louisville, KY, I have seen no better mechanism to help ensure your business’ success than a well-thought-out and vetted business plan. The process of developing a business plan forces one to address multiple levels of planning some of which include market analysis and planning, financial projections and cash flow analysis, organization of management team, sales strategies, just to name a few items. A business plan provides the forethought that helps you springboard to success.
- ) Insufficient Capital. Lack of start-up capital is a major contributor to business failure that I have encountered as a lawyer. Cash is king. It takes time to position your business to throw-off enough cash flow to cover expenses. Many entrepreneurs under estimate the capital needed to get their business over the hump. Often, companies do not have adequate financing (e.g. lines of credit) to sustain it during its initial stages.
- ) No Business Structure. A typical mistake of a small start-up business is not availing itself of a business structure that may shelter the business owner from personal liability. Corporations and Limited Liability Companies may afford such protection.
- ) Failure to Have a Formal Ownership Agreement. Entities with more than one owner should prepare a shareholder, operating or partnership agreement (whichever is applicable) between themselves to be used as a road map for many company and ownership issues. These agreements address various items and triggering events such as capitalization, distributions, voluntary and involuntary transfers of ownership interest, death, disability, and ownership buy-out. If there is no contract between owners, your business may dissolve or litigation may ensue without a written understanding of how to handle certain events. Such an agreement will help hurdle the roadblocks that may be encountered.
- ) Failure to Assemble a Team of Outside Advisors. You do not know as much as you think. You may believe that you can handle matters on your own. However, what you do not know may hurt you. It is important to develop and utilize an advisory team that includes attorneys, accountants, bankers, insurance agents and others to help you navigate financial success and protect your company from liability.
Richard A. Greenberg
Richard A. Greenberg, PLLC
2321 Lime Kiln Lane
Louisville, KY 40222
(502) 429-8496
[email protected]
www.richardgreenberglaw.com
Copyright 2018 – Richard A Greenberg, Louisville, KY – All Rights Reserved
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